Ger30, UK100 and SP500 are CFD’s, written over the Dax30, Footsie100 and S&P500 Index futures:
In the pre-opening, European shares traded lower, due to the weakness of the Chinese markets. In addition, the next decision of the Fed remains wrapped in a cloak of uncertainty that affects equity markets. Today is a holiday in London (Summer Bank Holiday) by which the activity should be lower. Initially, the sectors most exposed to the Chinese economy (automotive, industrial, etc.) should register a under-performance. After the strong gains on Friday, the oil retreated in Asian session, which shall penalize its industry.
On Wall Street, after a very turbulent week, the last week was particularly calm, watching to a decrease in volatility. The volume also has fallen and the major indexes ended the day with contained variations. This pattern can be explained by the fact that many investors wanting to reorganize their perspectives on the current situation of financial markets after wild swings that equity markets had in previous sessions. In addition, the approaching of the weekend, led some institutional investors to adopt a more expectant posture. The most animated point of the session turned out to be the behavior of the oil sector, which managed to achieve a higher valuation to 2%, thus constituting the main catalyst of the modest gains of the S & P. Boosting this sector was the sharp rise of crude oil price traded in New York (+ 6.25%). This movement is essentially explained by four factors. The first are the latest data on the US economy, which have been mostly positive. On Friday was published that the household income reached in August 0.40%, as economists expected, while spending increased 0.30%, compared to 0.40% expected. The consumer confidence index, as measured by the University of Michigan, stood at 91.9, below the 93 expected. The second factor is the decrease in oil supply produced in Nigeria, caused by failures in two pipelines from Shell. The third relates to a reported news in the Wall Street Journal which stated that Venezuela and Russia would be to hold an extraordinary OPEC meeting in order to study a strategy that consent a recovery in oil prices. The last factor is related to technical factors. The drop in oil prices in the previous weeks, justified by fears about China prompted many hedge funds to establish selling positions. After the gains achieved by this strategy and given these positive news, many of these investors decided to close these selling positions. For this week, it is expected that the volatility remains high, with the equity markets to present a remarkable sensitivity to developments in China. In addition, investors will be attentive to the publication of the employment report on Friday, which will bring back to markets all matters relating to the Fed.
Asian shares closed lower, with the Shanghai Stock Exchange accumulating losses of 2.50%, at 7:00 am. During the weekend, the Financial Times reported that the Chinese government would abandon its strategy to stabilize the stock market by buying shares held by state-owned financial institutions. The government in Beijing will focus its efforts on the punishment of persons and organizations that supposedly destabilized the Shanghai and Shenzhen exchanges. Initially, the Chinese authorities have tried to counter the sharp falls in stock markets, buying, through state funds, about 200,000 M.USD in two months. These interventions did not have had the desired success, displeasing international investors, as they are not familiarized the State to adopt such measures.